The Ethical Barometer

In tough economic times, employers keep a closer eye on expenses.  They watch that bottom line and they cut out office parties, employee discounts, and other perks.  In tough economic times, employees steal more from their employers.  They do so because they lost their parties, discounts, and perks.  Worse, it is the most trusted employees who bump up those travel expenses just a bit and pocket office supplies for use at home.  What does the pilferer look like?  According to a Price Waterhouse study:

Average length of employment:     7.5 years

Average age:                                           Between the ages of 31 and 40

Gender                                                       88% male

Education                                                 38% hold a college degree

                                                                      12% hold a postgraduate degree

Monitoring does not do the trick.  About 20% of companies are doing more audits of employee expenses and office supply inventory. Another 17% are adding security measures, including monitoring.  However, emphasizingthe code of conduct, integrity, and honesty do have a substantial impact.  We all need the reminders. And we seem to be deterred when we are given that nudge toward ethics.

On May 9, 2010, Yale psychologist Dr. Paul Bloom had an intriguing article in The New York Times Magazine, “The Moral Life of Babies.”  If this brief excerpt does not pique your curiosity or restore your faith in human nature, well, you may be unmovable.

Not long ago, a team of researchers watched a 1-year-old boy take justice into his own hands. The boy had just seen a puppet show in which one puppet played with a ball while interacting with two other puppets. The center puppet would slide the ball to the puppet on the right, who would pass it back. And the center puppet (more…)

Hospital swiping: 64% of hospital patients and family members take towels, linens, and pillows from patient rooms. Now, one-third of the patients in hospitals are not paying for their stays there, so a hospital stay is actually a revenue-producing event for one-third of hospital patients in the United States. Perhaps “thou shalt not steal” applied to patients is a partial answer to the “how to pay for health care” query.

VHA Inc., survey of 100 hospital supply executives, March 2010

Somewhere amongst self-esteem, performance evaluations, annual reviews, and reality, a disconnect the size of the San Andreas fault has befallen working adults.  We expect this kind of response from our youth because, well, we brought them up to believe not just that they were all above average but that they were all worthy of homogenous praise for their talents and a winning season. Everyone gets a trophy at the Chuck E. Cheese sports banquets, those events at which tokens swarm the game slots like bees after Pepsi spills on a national park trash can swing lid.  Under this system, the kid who can’t land a token in a slot with direct contact has pitching talent equal to that of The Big Machine, Randy Johnson. The Barometer wonders, whatever happened to telling kids and employees the truth? (more…)

Professor Jerry Burger of Santa Clara University has finally put the doubts to rest.  Many psychologists have maintained for 40 years that the 1963 Stanley Milgram studies could never be repeated with the same results.  Milgram was the Yale psychology professor who had confederates pose as learners who were to be given electric shocks by study participants when they gave wrong answers.  (You Ghostbusters fans have seen Bill Murray do the experiment as “poor scientist” Dr. Peter Venkman.) The confederate learners feigned pain with each shock the participants thought they were administering. The participants, who often looked around for reassurance, were told by a lab-coated supervisor to keep going. 80% of Milgram’s participants went to 150-volts of shock, despite the cries of pain.  Milgram also had 65% take the shocks up to 450 volts.  Professor Burger had 70% of his participants take the shocks up to 150 volts.  We do follow orders.  The Barometer teaches students about Milgram’s and Burger’s work because it helps them understand that, on occasion, saying “No!” to authority figures is important.  That “No” applies to orders to cook books, pay bribes, and sell air to investors, actions that can produce pain as stunning as electric shocks. 

One of the Big Four accounting firms, KPMG, has just released the results of a survey of 5,000 employees at various types of organizations who work at all levels of those organizations.  The 74% level is the same as the 2005 level and comparable to the 76% level in 2000.  The employees also said that the misconduct they observed was motivated by the pressure to “do whatever it takes” to get results.  Half of the employees also said that if the public knew of the ethical breaches they had observed, it would cause them to lose trust.  That figure was 60% for banking and finance organizations.   

Suppose that copying test answers, using crib sheets, copying someone else’s homework, plagiarism, and teaming up on work when you should be flying solo are included in the definition of cheating. In this day and age, one must define cheating because to some students copying someone else’s answers during a test would be research, not cheating.  Suppose further that you asked 25,000 high school students if they had ever engaged in “cheating.”  You would get a whopping 90% saying, “Duh, yes!”  Dr. Donald McCabe of Rutgers has been keeping score, as it were, on cheating since 1963.  The rate of overall cheating has tripled. Copying from others’ answers on tests has doubled from 26% to 52%.  Crib-sheet use on exams has climbed from 6% to 27%.  But Dr. McCabe and Dr. Jason Stephens of the University of Connecticut are not prophets of gloom.  They have fixes, and they work.  (more…)

The Association of Certified Fraud Examiners has given us some insight into uncovering fraud in companies.  First factoid:  Nearly one-half of the fraud cases were uncovered purely serendipitously.  Second factoid: Another 46% were uncovered by tips from employees.  So much for the heavy hand and success rate of SOX 404 requirements and internal controls.  The Barometer once again reminds all:  The single best source for uncovering financial fraud is your employees.  Put all your effort into tapping into their knowledge base. Work on getting what they know to those in your organization who can take action.  Protect those employees who throw down the flag.  Indeed, recognize and reward employees who do the right thing.  For more info on the insights of this new study go to www.asfe.org.  For more information on tapping into what those employees know and how they can help, see Marianne M. Jennings, “The Seven Signs of Ethical Collapse.”  

A study published in Columbia Business Law Review teaches an important principle when it comes to personal injury suits brought against businesses:  Pay early and pay less.  The study shows that the savings per claim average is $114,000 and for severe injuries the average is $670,000.  Likewise, savings on lawyer fees average $32,000 (and $211,000 for severe injuries).  The study, done by Professor Jeffrey O’Connell (Virginia School of Law) and Associate Professor Patricia Born (Cal State Northridge), looked at settlements between 1988 and 2004 in Texas and Florida.  There is a risk for businesses in taking these cases to a jury.  The good professors’ work, ” The Cost and Other Advantages of an Early Offers Reform for Personal Injury Claims Against Business, Including for Product Liability,” can be found at 2008 Col. Bus. L. Rev. 423.  

Since 2002, the Department of Labor has received 1,273 whistleblower complaints under the protective provisions of Sarbanes-Oxley (SOX) .  Of those 1,273 complaints, only 17 have been upheld by the Department of Labor as retaliatory conduct prohibited under SOX.  A total of 841 of the cases have been dismissed.  The remaining cases are pending, settled, or withdrawn. Why the low success rate for SOX whistle-blowers?  Well, there is a little known exception to SOX protections:  subsidiaries are not covered under the Act.  Employees at subsidiaries who blow the whistle on their companies are not afforded protection from retaliation.  The Department of Labor has concluded that the plain language of Sarbanes-Oxley indicates that it applies only to publicly traded companies.  The DOL is correct.  Congress needs to correct the language to include, “and subsidiaries of publicly traded companies.”  This is one heck of a loophole that permits subsidiary shenanigans with little risk of disclosure by employees who know they make a career-ending move when they throw down the flag at a subsidiary.